Backdrop
When I was young, I heard my grandfather talk about his contemplation of investing in Chrysler in the late 1970s. He saw their stock was exceptionally low and contemplated buying thousands of dollars of their exceptionally low stock. This was the old days of the stock market, where you walked into a building with a bunch of stockbrokers wearing suits, gleaning insights on the market by means of ticker tape.
He got cold feet, decided against the investment. Alas, their stock not only recovered, but soared. He had missed out on a significantly profitable opportunity.
I was sitting in the engineering library of my university when the realization hit me—COVID-19 was not like the other viruses which made rounds in the news in my lifetime like zika, ebola, or H1N1. Not that these other viruses did not kill people or have many cases (in fact, the CDC estimates that during the H1N1 outbreak of 2009-2010 there were 60.8 million cases in the United States), but rather that COVID-19 was going to have a significant impact on life and the economy in the US. This impact, I surmised, presented me with a very rare opportunity to invest in the market during the crash and yield sizable gains. With the markets dipping lower day by day, I decided to investigate investing in the stock market.
My outlook on the market
My outlook on the stock market is that most people should not trade individual stocks, and I maintain this. The stock market is an exceptionally complicated beast, and casuals (like myself) are asking to be gamed by algorithms and day traders. However, I saw a crash caused by non-economic factors amidst a bull market as a great equalizer. I factored these very specific market conditions into my strategy for investing.
My gameplan
I began learning more about the stock market and crafting a strategy which minimized risk and maximized upside (duh 😁). I made the following rules dictating which stocks I invested in:
- Invest in companies whose business model is not fundamentally challenged by the pandemic, as this was too much risk (avoid airlines for instance). Opt instead for companies which are suffering a temporary lack of demand due to the market shutting down
- Invest in companies which are stable and have a stock price which is trending upwards with a dip during the pandemic. I only invested if I expected at least a 30% return within the next 6 months. I centered my strategy on finding stocks which I expected to make a relatively quick market recovery after the pandemic
- Invest in companies in which I have some interest and understanding of the nature of the business
- Diversify the stocks I invested in, in case any single market was unexpectedly overwhelmingly affected or was slow to recover from the pandemic
- Respect the complexity of the market and understand my inexperience with it. As such, I did not invest any money I could not afford to lose
- Understand that timing is everything. Don’t be too greedy or obsessed with buying/selling at the absolute crest/trough. That’s a good way to lose a lot or miss a great opportunity
There were other considerations I made in addition, but they were less fundamental given the extraordinary circumstances of the market. For instance, price-to-earnings and debt-to-equity ratio were a few of these considerations.
My Experience
I invested a modest amount of money to three companies in various measures. I invested in General Motors (GM), Alcoa (AA), and Aramark (ARMK). I invested gradually, but bought most of my stocks on April 17.
I enjoyed keeping track of my stocks (I’m sure it would have been an entirely different experience had I been losing money), seeing them gradually grow. There is most definitely something mesmerizing about watching the stock ticker, the prices constantly fluctuating, as millions try to separate the signal from the noise.
I tried to forget about my investment, but found this difficult. I found a happy medium where I would check a few times a day, until something significant started happening. The market started a tremendous rally, leaving stocks soaring back to pre-pandemic levels. This gained my attention, as my earning started becoming more and more significant. At the same time, I was reminding myself to not get greedy and be reasonable.
I felt something was amiss. The Federal Reserve and many economists had a particularly gloomy long-term economic outlook. The economy had not entirely even opened yet, and the market was reaching pre-pandemic levels. I couldn’t help but feel the soaring market reflected blind optimism more than realism. I sold the vast majority of my stocks, then a few days later the rest.
I continued to follow the stocks I had invested in, wanted to gauge how wise my divestments were. A few days later, I woke to the sharpest decline in the stock market since the start of the pandemic. I felt a mixture of relief and awe as I gazed at that ticker, which undoubtedly has a mind of its own.
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Warren Buffet
Conclusion
In the end, I made a decent amount of money from my modest investment. My yields from trading were not significant enough to change my life significantly, but nonetheless, I found the pursuit to be quite fun and interesting. I don’t see myself investing again any time soon, unless a new unusual and lucrative opportunity were to extend its hand, but I understand the market is most certainly not to be warmly embraced, but rather to viewed with a certain amount of reverence and fear.
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